Carnegie Mellon University

graphic of virus and stockmarket chart

September 01, 2020

Tepper Economists Receive $50,000 Grant from Richard King Mellon Foundation for COVID-19 Economic Impact Research

Through a Richard King Mellon Foundation grant, Tepper School researchers aim to understand the effects of the coronavirus pandemic on consumer behavior.

As the coronavirus pandemic continues to uproot and impact our daily lives — the way we work, shop for groceries, socialize, and more — economists at the Tepper School are researching ways to identify and categorize emerging patterns of consumer behavior.

In Allegheny County, where the city of Pittsburgh is located, masks are mandatory for individuals before entering all businesses. Restaurants are open for in-person dining but limited to 25 percent capacity; fans are not yet welcome to gather at live sporting events; and while movie theaters are beginning to reopen, theaters also will be at limited capacity. The way that we enjoy a meal outside of our homes or a night of entertainment out on the town has changed, and it’s not just because of government mandates and restrictions.

At least, that’s what Tepper School economists Laurence Ales, Associate Professor of Economics; Rebecca Lessem, Associate Professor of Economics; Chris Telmer, Associate Professor of Financial Economics and Head of Economics; and Ariel Zetlin-Jones, Associate Professor of Economics, aim to prove through their micro- and macro-economics research project, “Developing a Pandemic Consumption Expenditure Index,” which received a $50,000 research grant from the Richard King Mellon Foundation this summer.

Understanding the Long-Term Impact of the Pandemic

“This project represents Tepper economists of various backgrounds and areas of expertise stepping up in an extraordinary moment, to come together and ask, what can we do to contribute to the situation we find ourselves in?” said Telmer.

Understanding the long-term impact of the coronavirus pandemic on the local and global economy will take years, but the group of economists hope to develop an index that can be used to predict further outcomes.

“We asked the question, what can we do at Tepper that will have a big impact on generating new information for policymakers concerning the reopening of the economy (including the local Pittsburgh economy), following the pandemic?” said Zetlin-Jones.

“The answer was that we need to understand how consumer behavior will change and be impacted by different margins.”

“If you can understand better how households behave and consumers spend their money, that goes a long way toward understanding the entire consumption bundle and how each product, service, or industry will be impacted and what recovery looks like,” said Ales.

Designing a Model to Predict Consumer Behavior

Economists make predictions in part by looking at historical data, but the coronavirus pandemic posed a new issue: the data related to consumer behavior following a pandemic is over a hundred years old, and recent consumer behavior data can be months old by the time it reaches the economists’ desks.

Capturing new data on how consumer behavior has changed since the beginning of the pandemic and how it is likely to change in the future, then organizing that data based on a taxonomy of shared characteristics, is the foundation of the project.

“What are the underlying characteristics of a consumer good?” said Ales.

“A consumption good is a combination of a lot of different elements. You have to think – how is the good produced? Why are people consuming it? How is it being consumed? Identifying these characteristics across different goods will allow us to make predictions of how consumer behavior is likely to change from an economic shock, like a pandemic.”

One of the early consumption goods the researchers focused on was the restaurant industry. Although in-person dining opened back up in Pittsburgh over the summer, the researchers found that restaurant reservations were still at an all-time low. Their working theory is that a consumer’s behavior — including tolerance of risk and perception of payoff — is influencing our daily “return to normal” decisions and in turn, those decisions are impacting the economy.

“Think about a restaurant meal as a good, and one of its characteristics is that it must be consumed in public, perhaps in relative close proximity to others,” said Telmer.

“We might see in the real-time data that the characteristics won’t change, but the extent to which a consumer wants to consume that good, with that characteristic, will change, such as during times of high infection rates. The survey will quantify and measure these small sets of characteristics and through our taxonomy, we can connect various goods.”

The same characteristics that can be applied to restaurants can be applied to other consumer goods and services, such as higher education, transportation, or the demand for certain consumer products. The index the researchers hope to develop will be a way to connect these different goods and services through similar characteristics in order to predict future behaviors.

The researchers are collaborating with CivicScience, a Pittsburgh-based consumer research and polling firm, to develop methodology and gather the data through surveys.

“We can use these surveys to learn how behavior has changed in response to this pandemic, which is not only useful today but also to help in the case of future pandemics or shocks,” said Lessem.

“Additionally, our goal is to continue to gather this data over the years so that we know how goods and services, and the way people consume them, have changed over time. Take for example, education. The characteristics of a college education could be very different in five years, as will the individual response to those characteristics, as influenced by the pandemic or other financial shocks."

Real-World Research in the Classroom

A small group of Carnegie Mellon students had the opportunity to work on the project through the university’s experiential summer learning course, “Creating New Economic Data for Decision Making in a Post-COVID-19 World.” Students were a key part in identifying early characteristics of consumer goods and drafting the first versions of the survey.

“The students helped us lay down the foundations for this project,” said Ales. “We are now in a great place to continue the research in the fall."

For many of the students, it was the first time they had been exposed to research at any level.

“The students learned that the research process often involves learning a new set of skills as you go,” said Lessem.

“Tepper undergraduate economics students played a critical role in this project,” said Telmer.

“Students were learning how to do research, how to ask questions, and then come up with a framework to answer them. Our students helped us to identify the questions we needed to be asking by being a part of the full scope of the project in a preliminary fashion.”

Impact on Pittsburgh’s Local Economy

The Richard King Mellon Foundation has been investing in the competitive future and quality of life in southwestern Pennsylvania for over 70 years. The foundation’s current giving priorities focus on regional economic development and conversation, along with education and human services, and nonprofit capacity building. In response to the pandemic, the foundation launched three funding initiatives to seek support for demonstrating economic recovery in the Pittsburgh area, both immediate and long-term.

“There was a call for economics research to generate ideas for how to improve economic outcomes in southwestern Pennsylvania following the pandemic,” said Zetlin-Jones.

“The grant itself was inspiring to us and motivated us to think outside of our own areas of expertise, and to use our collective backgrounds in a new direction that is different from our normal research.”

“We would not be able to continue the project without the generous support from the Richard King Mellon foundation,” added Ales.